In Australia, it is essential for both businesses and individuals to keep tax records that are not only organised but accurate. Tax records play a crucial role in ensuring compliance with tax laws and facilitating efficient tax reporting.
However, it can be extremely confusing to know what records you need to keep and for how long to keep them. With different individual circumstances and business structures, the record-keeping requirements may differ as well.
So here is a comprehensive guide to assist you with record-keeping in Australia.
What Is A Record?
A record is written evidence that supports your claims of income or expenses. Financial records are necessary to support the claims made in your tax return. For the majority of expenses, you would need a receipt or a similar document from the supplier.
Paper records or electronic records are both acceptable forms of records as long as they show the following:
- The business name (or name) of the supplier
- The nature of goods and services bought
- The amount of the expenses or cost of the asset
- The date on which goods and services were bought
- The date on which the document was produced
Exceptions to record-keeping requirements will be discussed later in this blog.
Tax Records You Need To Keep
How do you determine the records you need to keep?
The following records are essential for your tax return and should be kept. However, for the records you aren’t sure about keeping, it is better to keep them just to be on the safer side.
- Payment received by you, such as wages, dividends, interest, rental income and more (the majority of these will be digital records in the form of bank statements)
- Paperwork related to the sale or acquisition of an asset (usually such paperwork is in relation to a home purchase or sale, yet it may also include other major assets like shares)
- Expenses related to the income received
- All medical expenses for you, as well as your family members, that are listed on your Australian tax forms
- Donations, gifts or contributions to charitable organisations
- Records showing the contributions made into the super fund, specifically those you are claiming a tax deduction for
- Tax returns and refund details of the previous year
The Significance of Maintaining Accurate Records
Since the Australian tax system relies on self-assessment, the Australian Taxation Office expects that the information provided to them is accurate. However, when a tax return is reviewed by the ATO, and there isn’t any evidence that can support the claims for a deduction, the claims can be taken off the tax return.
By keeping good records, you can reduce the cost of managing your tax affairs. Keeping good records can also help you:
- Prepare your tax return.
- Provide written evidence for your income and expenses.
- Prove the information provided in your tax return is accurate.
- Improve communication with the authorities.
- Reduce the risk of tax audits.
- Avoid penalties.
- Resolve issues related to a dispute of your assessments or adjustments.
By keeping good records, you can easily reduce the cost of managing your tax affairs. It can also help you reduce the time your tax advisor has to spend on sorting and preparing your records.
Along with this, if you spend money on expenses that serve both business and personal purposes, it’s essential to maintain records demonstrating how you determined the portion of expenses related to generating taxable income.
How Long Do You Need To Keep Your Records?
The written evidence must be kept for five years from the date of lodgement of your tax return.
In specific scenarios, there are varying timeframes and exceptions regarding record-keeping obligations.
In the event of claiming a deduction for the decline in value of depreciable assets, you are required to maintain records for five years from the date of your last claim.
If you acquire or dispose of a Capital Gains Tax (CGT) asset, the record-keeping period is five years after it is established that no CGT event can occur.
When in dispute with tax authorities, the record-keeping duration is determined by the later of the following periods:
- Five years from the date of tax return lodgment.
- Five years from the date the dispute is resolved.
These guidelines ensure compliance with record-keeping requirements under specific circumstances.
What Should Be The Format Of The Records?
Both paper records and electronic records are accepted. However, you must ensure that if you are making paper or electronic copies of the financial records, they need to be true, as well as clear copies of the original documents or records.
It is worth noting that for the expenses you incurred in Australia, the records must be in English. For expenses incurred outside Australia, the document can be in the language of that nation.
What if you incur an expense in Australia, but the record is not in English? In this case, you have to translate the record to English via an authorised translation office.
When it comes to electronic record keeping, you can use any electronic record-keeping app or device to store records electronically. Another way to keep records is by using the myDeductions tool in the ATO app.
The myDeductions tool by the Australian Taxation Office makes keeping records, including photos, easier. The Australian Taxation Office (ATO) recognises documents stored digitally as records, such as photos of receipts.
This record-keeping tool can help sole traders who have simple affairs keep track of their business income and expenses. What’s more, you can also upload your records from this tool and pre-fill your tax return in myTax.
With myDeductions tool, you can keep your records for:
- Interest and dividend deductions
- All work-related expenses
- Gifts and donations
- Sole trader expenses and business income
- Costs of managing tax affairs
- Other deductions.
With this tool, you can email these records directly to the registered tax agent if you use them.
Record Keeping Exceptions
The ATO has introduced record-keeping exceptions to simplify certain situations.
In some circumstances, the ATO may grant relief from the effects of failing to keep records. Along with this, in certain circumstances, you may also not need receipts. However, you will still be required to show your spent money as well as how you calculated your claim.
The following are some of the exceptions:
Total work expenses $300 or less
You must have written evidence to claim work expenses of more than $300. But when the total claim for work expenses is $300 or less, the deduction can be claimed without written evidence. As long as you are able to show that you spent the money and how you calculated the amount of the claim, you are good to go.
This $300 deduction limit for work expenses is not applicable to claims for meal allowances, car expenses, award transport payments allowance, or travel allowance expenses.
Small expense receipts
Small expenses are the ones that are $10 or less, but your total claim for small expenses is $200 or less.
In case you cannot get a receipt from a supplier, you might still be able to claim a deduction as long as you have evidence you incurred the expense. The record must be soon after incurring the expense, and it should include the following:
- Supplier’s name or business name
- Expense amount or asset cost
- Nature of the goods or services
- Date of purchase
- Date the record was created
If the expense involves the decline in value of a depreciating asset, your record should additionally cover the following:
- Asset description
- Decline in value amount
- Record creator’s identity
- Date the record was generated.
Total laundry expenses of $150 or less
If your laundry expenses for work amount to $150 or less (excluding dry-cleaning costs), you’re eligible to claim a deduction even without written evidence. It’s crucial, however, to be able to demonstrate the expenditure and outline how you arrived at the claimed amount.
Even if your total deduction for work-related expenses exceeds $300, you’re still eligible to claim a deduction for laundry expenses, specifically up to $150, without the need for written evidence.
It’s important to note that while this exception allows for claiming laundry expenses without receipts, it doesn’t raise the overall limit for work-related expenses from $300 to $450. The $300 limit for work-related expenses remains applicable.
In cases where your total work-related expenses surpass $300, and your laundry expenses go beyond $150, maintaining written evidence for all your laundry expenses becomes necessary, not just for the amount exceeding $150. Staying mindful of these guidelines ensures a smooth process when claiming deductions for your laundry-related costs.
Hard to get receipts
When dealing with expenses for which obtaining a receipt proves challenging, you have the option to create a record instead of acquiring a document from the supplier. These hard-to-obtain receipt expenses can vary in amount, and notably, they are not subject to the $200 limit for small expenses.
It’s crucial to generate the record promptly after incurring the expense, including the following details:
- Supplier’s name or business name
- Expense amount or asset cost
- Nature of the goods or services purchased
- Date of the transaction
- Date the record was created.
If I’ve Accidentally Lost Or Destroyed The Records, What Do I Do Now?
If you’ve lost or destroyed important records but can provide a complete copy, you’re in luck – these replicated records are treated as the original for deduction purposes.
In cases where obtaining a complete copy or a substitute document meeting the original record requirements proves challenging, there’s still a chance for relief from substantiation (keeping records). This relief is considered when:
- There’s sufficient evidence indicating the deductible expense was incurred.
- You can provide proof of the loss or destruction of your records.
- Despite reasonable precautions, documents have been lost or destroyed.
- You’ve made efforts to obtain a substitute record meeting the original requirements.
- You can demonstrate your sincere attempts or reasonable grounds for the unsuccessful effort to secure a substitute document.
- It was not reasonably possible for you to acquire a substitute document.
It is essential to keep the financial records for the required period of time. If you need assistance with your tax records, feel free to reach out to our team of expert tax professionals.
The experts at Clear Tax Accountants possess a deep understanding of Australian tax laws, offering the knowledge and assistance necessary for efficiently handling your tax responsibilities and ensuring meticulous record-keeping.
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